Tuesday, April 21, 2009

Green shoots

Once in a while, I allow Washed and Ready to Eat a serious moment. Regular fans needn't worry. The usual rubbish will resume shortly.

It just seems to me that there's a desperate attempt to talk up the UK housing market right now. A few spurious figures showing an upward blip and some quite serious people appear on the TV telling us that the market has "bottomed out". I'm not so convinced. If you take a look at the graph from the last major recession in the early 90s, there were a number of little upward spikes during the long downward cycle. In other words, a couple of Halifax surveys don't make a summer.

Of course, mortgage finance is becoming more available again and this helps fuel speculation over the 'green shoots'. But we are also in a severe recession, which was precipitated by the credit crunch but exists independently from it. And house prices don't rise in a recession.

Over the next year, unemployment figures will continue to climb - possibly breaking through the three million barrier. As people become unemployed, they will lack the finance and the confidence to commit to new properties. Some will default on the mortgage payments for their existing homes. As a result, the number of repossessions will continue to rise, despite various attempts by the government to provide homeowners with some protection.

If there's an economist out there who can explain to me how prices can go up - or even stabilise - in a climate like this, I'm interested to hear your thoughts on the Comments page. As things stand, I see a lot of desperate estate agents clutching at rather large straws. And politicians who want to tell you that an upturn in the housing market is the precursor of an upturn in the general economy. The reality, of course, is completely the other way about.

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